It came as big news to me earlier this year when I heard that Experian would now be reporting rental payments. Folks have often said to me that they would love for their good rental history to show on their credit reports. But up until recently I always had to say “well, I’m sorry, but I’m just the messenger.” For those of you who have great rental payment history the message has changed. Your ability to get those payments in on time will now be reflected on Experian’s report. Vice President and Managing Director of Experian Rent Bureau Brannan Johnston, says that “given that one-third of the U.S. population rents, we felt it was imperative to reflect the true credit worthiness of those individuals who responsibly pay their rent.”
This is great news should you need to move and find another rental. This reporting will also be very beneficial in helping you build more information on your credit report. But this reporting does not, however, come automatically. In order to get your information onto your report your landlord must use Rent Bureau, one of the nation’s largest rent payment reporting companies.
While this will come as great news to those who always get their rental payments in on time, it may seem like a blow to those who struggle. For those of you who fall into the latter category, this news is not as bad as it sounds – at least for the next year. Only positive rental payment data will be added to credit reports – no lates or chargeoffs will be reported. Experian doesn’t expect to add derogatory data until 2012.
If you’re looking for a way to raise your FICO score the new rental payments now appearing on your Experian reports won’t help. For now, Experian’s new rental reporting will have no effect on your FICO score. And because it’s your FICO score that most lenders look at, Experian’s rental reporting won’t have much of an impact for obtaining a mortgage. But there’s no telling how lenders will come to read this information in the future. FICO’s Careen Foster says that FICO is “constantly evaluating new sources and types of data… [and} looking forward to receiving and analyzing Experian’s new rental data to determine how it might enhance the picture rendered by the FICO score.” So if you’re looking to purchase a home someday at a good rate, being aware of your reported rental payment history might prove to be important.
In this ever-changing credit landscape, please reach out and ask me questions, JeanneKelly@Kgroupconsulting.com
Every relationship takes work. While we all want the love to be there when we need it, ignoring your relationship, even just a little, can spark the beginning of the end. The same is true for your relationship with your credit.
Here are some ways to keep the love alive and to keep that credit relationship thriving:
Be on Time:
Pay your bills when they’re due. Whether it’s a mortgage, car loan, or credit card, being on time with your payments will keep your report staying strong.
Maintain a Healthy Balance:
Maxed out credit will bring down your score. Work to stabilize that healthy credit you’ve worked for by keeping your balances to 20% of the high limit on revolving accounts.
Keeping the Spark Alive:
While having a number of open accounts is good, inactivity on them is not. A healthier credit score depends on using your accounts. To give your report that extra glow, mix it up by pulling out some of those old store credit cards once in a while.
Taking the Long View:
An enduring credit relationship depends on having long terms credit goals. When you apply for credit, remember you will be building a history with that creditor.
Yes, credit is a lot like love. We all want it. We all need it. But it’s a two way street, and finding ways to maintain it is the key.
Because there is an assumption that those with the worst credit make the least amount of money, I’m frequently asked how my clients are able to afford my services. When I explain that most of my clients have good incomes, they’re left even more perplexed. Why, if they make so much money, are their FICO scores so low?
In the recent frenzy surrounding Michael Jackson’s death, an MSN article http://blogs.moneycentral.msn.com/smartspending/?fpn=michael%20jackson%20s%20credit%20score%20564 revealed that he had low FICO scores – 592, 524, 575. Well, to put it simply, Michael Jackson is my typical client.
Jackson obviously had a large income. But he must have also been sloppy when it came to paying his bills. And while I assume he had at least one financial advisor watching his investments, financial advisors don’t usually spend their time thinking about FICO scores or loan rates. That’s why much of my time is spent talking to my Jackson-like clients about the relationship between higher interest rates and unhealthy credit.
For example let’s imagine that Michael Jackson had a 5 million dollar loan. Let’s do some math on how much money I might have been able to save Mr. Jackson had he come to me for credit help:
The monthly payment for a 5 million dollar loan at 9% is $ 40,231.13.
Let’s say I helped him with his credit, put him on track to keep building better credit, and got his interest rate lowered to 7%. That 5 million dollar loan’s monthly payment would be reduced from $40,231.13 to $33,265.12.
Then let’s say, 12 months later, his FICO improved even more and he became eligible for a new rate of 5%. Instead of $33,265.12 per month, the payment would now be reduced to $26,841.08. The loan payments would be reduced by nearly half of the original loan.
We should all take a lesson from Michael Jackson. Whether your annual income is $25,000 or $10,000,000, being on top of your credit, or hiring someone who can do it for you, can save you an enormous amount of money.
Here is link to see how much money your FICO is costing you on a mortgage: http://www.myfico.com/myfico/CreditCentral/LoanRates.aspx
As of August 20, 2009 credit card companies must:
Have your statement to you 21 days before the due date
Give you 45 days notice of increasing your interest rate
You have option to reject new rate, but if you chose that option the account will be closed with old rate and you have a certain amount of time to pay off the existing balance.
Because 30% of your FICO score is based on amounts owed on revolving credit, I can’t say it enough: watch your balances!
ANATOMY OF A FICO SCORE
35% payment history
30% amounts owed on revolving accounts
15% length of credit
10% new credit
10% types of credit
Being over your limit or near your limit on revolving accounts will detract points from your score. Revolving accounts are credit cards and lines of credit. I get asked all the time: what if I pay off my auto loan? It will make no difference. It will not affect your FICO score. FICO is only concerned with how consumers use their open lines of credit.
It’s simple. Paying down your balances to 20% or less of the high limit will give a boost to your score – sometimes as much as 50 points.
ONE CAVEAT:
Home equities are revolving balances. In other words, home equity loans do not report as an installment loan like a regular mortgage. Because paying down a home equity is not an option for most folks, consider asking your bank to recode your home equity as a mortgage. If they won’t, consider getting a second mortgage to pay off the home equity. It will make a difference in the long run.
I’ve never heard so many people talking publicly about credit. And it’s been wonderful to hear more and more people taking stock of their unhealthy credit use and control of their financial lives. But I’m worried when I hear folks saying things like “I’ve learned my lesson, I’ve paid off my credit cards, closed them out, and now only use my debit card.”
Because debit cards are not approved lines of credit that go on your credit report, because they do not to show any kind of history, without other lines of credit, one has no payment history to speak of. And this is not good for your FICO score.
Here are some tips to keep in mind to help you from walking away from credit and to keep you building better credit.
1. Every year, take advantage of any 0% transfer credit card balances. This will build new credit while saving money on interest at the same time. It’s best to build at least two new accounts a year.
2. Look at your credit report and make sure all your credit card companies are reporting a high limit. I see many creditors only report the balance due.
3. Maintain recent activity on accounts. Take out the store card you have not used in years and use it! If you are going to shop in that store, you might as well use the card they gave you and pay the bill when you get home.
4. Pay down your credit card balances to 20% or less of the high limit.
5. Monitor your credit to be aware of who is reporting what on you.
Embrace and enjoy the credit you have established over the years. Do not throw it away.
Bankruptcy –10 years in public record section from date filed.
All the accounts listed included in the bankruptcy
remain for seven years.
Closed accounts – Ten years from date closed.
Collection accounts – If account is paid it will be
marked as paid, but will still remain for seven years
from the date account went into collection or charge-off status.
Inquiries – Two years.
Judgments – Seven years from date filed.
Late payments – Seven years from the date reported late.
Lost credit card –Two years, but if account has any late
payments it remains for seven years.
Tax Liens – Seven years from paid date, but unpaid liens
remain fifteen years from filing date.
All your ex’s stuff is out of the house, the divorce is finalized and you are basking in your new independence. But your divorce decree has your ex responsible for the Visa card and part of the mortgage you once held together. Your ex may seem gone, but the divorce decree means nothing to a creditor or the credit reports.
The judge said your ex had to pay the Visa, but what if those payments are late? Any late payments will go on your credit report. In fact that goes for any account you held jointly during your marriage. When the lender gave you the funds, when you signed the dotted line, they did not care if you were married, domestic partners, business partners or friends. They gave you the account because you both applied for it.
The only way to protect your credit with a divorce is have your ex pay off the account. If that is not a financial possibility, try getting your name taken off the account. Creditors sometimes require reapplying for the same account or establishing a new account with a balance transfer.
In the end, make sure any and all joint accounts that have a zero balance and are closed at the time of your divorce. That way there’s no possibility of you being responsible for any new debt your ex accrues and you do not have to worry how he pays his bills anymore!